Russia and China make a deal

June 3, 2014

An alliance between Russia, the world's largest energy producer, and China, the world's largest energy consumer, will remake superpower relations, writes Ashley Smith.

RUSSIA AND China agreed to a 30-year, $400 billion gas deal at a May 21 meeting in Shanghai. Called the Agreement on Cooperation, Russian President Vladimir Putin hailed the deal as an "epochal event," boasting that it is "the biggest contract in the history of the gas sector of the former USSR and Russia." China's Xinhua News Agency described it as "another important result of China and Russia strengthening their relations as comprehensive energy partners."

In the deal, Russia's state-owned energy company, Gazprom, has promised to drill new gas fields in Siberia, construct a new 2,500-mile pipeline and ship 1.3 trillion cubic feet of gas each year to the state-owned China National Petroleum Corporation. China will invest $20 billion and Russia $55 billion to fund this massive project.

On the surface, this looks like just another energy pact. Certainly Obama's Secretary of State John Kerry characterized it that way, dismissing the idea that it was consummated in response to American pressure on China and Russia. "We don't see any relationship whatsoever," he stated, "to an agreement with respect to gas and energy supplies between Russia and China that they've been working on for 10 years."

At work on a pipeline designed to transport natural gas from Russia to China
At work on a pipeline designed to transport natural gas from Russia to China

Others in the establishment were not so sanguine. Obama's former Defense Secretary Robert Gates worried that Russia and China are seeking to extend their influence:

The perception has grown increasingly around the world that the U.S. is pulling back from the global responsibilities that it has shouldered for many decades. I believe Russia and China, among others, see that void and are moving to see what advantage they can take of it. They're not going to challenge us in a way that would produce a conflict, but as they perceive our unwillingness to commit overseas, our unwillingness to make tough decisions, as in Syria, I think they see opportunities to pursue their own nationalist ambitions and to take other actions that are self-aggrandizing.

Of course, Gates is putting his own American nationalist spin on events, disguising the fact that American belligerence toward both countries is driving them into an emerging partnership. A key battleground for these intensifying rivalries is energy. Since no state wants to be at a disadvantage, none will agree to any limit on exploitation of hydrocarbons.

The intensifying inter-imperial rivalry is driving countries on all sides to increase the production and use of hydrocarbon fuels, thereby accelerating climate change with all its attendant social and ecological devastation.

Imperial Roots of the Deal

While Russia's pact with China has indeed been under negotiation for over a decade, the immediate cause of the deal was the crisis in Ukraine. The U.S. attempted to hijack a mass popular uprising against the oligarchs' government. Russia responded by backing its own allies in the country, mobilizing troops to the border, and annexing Crimea through pressure and a popular referendum.

The U.S. successfully pressured the European Union (EU) to impose economic sanctions on Russian capitalists closely allied with Putin. Germany and other European powers, which get 30 percent of their natural gas from Russia, were worried that Putin would reciprocate by cutting off gas supplies.

Concerned about excessive dependence on the European market, Russia hopes to use its agreement with China to diversify demand for its natural gas exports. Currently, Russia exports about 80 percent of its gas to Europe, according to Stratfor. By securing access to the Chinese market, the fastest-growing in the world, it achieves several goals.

The deal makes it easier for Russia to blackmail Europe with the threat that it could cut off or redirect increasing amounts of its gas to China. It gets access to Chinese banks as an alternative source of investment in its economy to free it from dependency on American and European finance. Russia has also demonstrated that it can escape some of the impact of sanctions and the geopolitical isolation orchestrated by the U.S.

Thus, Forbes writes that "the West may have overplayed its hand in thinking it could impose sanctions and deeply harm the Russian energy sector. If anything, Russia has demonstrated that it is wiling to substantially deepen its economic ties with China."

China had similar reasons for finally agreeing to the deal. For the past 15 years, China has been pursuing its aggressive "Go Out" strategy to meet its energy needs and open markets for its products all around the world. In the process, it has come into conflict with several states in Asia--from Japan to the Philippines and Vietnam--over disputed islands and claims to territorial waters in the South and East China Seas.

The U.S. has responded with Obama's so-called "pivot to Asia," which aims to unite U.S. allies in order to contain China. Before the "pivot," China had been considering importing liquefied natural gas (LNG) from North America. Instead, China opted to strike a deal with Russia, which will provide China with 20 percent of its natural gas after the pipeline opens in 2018.

The deal serves Chinese imperial interests in numerous ways. It diversifies China's sources of energy, most of which are under American hegemony (for example, in the Middle East). Plus, the terms of the deal are very favorable to China. "The Chinese managed to achieve a lower price than the Russians had wanted," according to Britain's Guardian newspaper, "and the deal will mean a loss for Russia, at least for the first several years after operations start in 2018."

China will pay $350 per 1,000 cubic meters, according to National Public Radio, a bit lower than the European standard and dramatically lower than the average in Asia. China will in turn use the deal with Russia to pressure its other suppliers to lower their prices. By securing gas through an overland pipeline from Siberia, China lessens its dependence on imports of oil and gas through the chokepoint of the Straight of Malacca, which the U.S. polices with its Navy.

China plans to use the Russian gas to replace coal as the source of fuel for its factories and generators, thus alleviating the horrendous smog that smothers many Chinese cities and threatened to become an international embarrassment during the 2012 Olympics.

Finally, China and Russia struck the deal in their own currencies--the yuan and ruble--not petrodollars. They did so as part of a developing strategy on both their parts to free themselves from dependency on U.S. finance capital.

Thus, the gas deal is a qualitative advance in an emerging Russian-Chinese alliance against the U.S. In a melodramatic reaction, Forbes' Mark Admonanis voiced his worries:

A Russia-China alliance would, of course, be an absolute disaster for the United States, pretty much the only grouping of countries that would be genuinely interested in and capable of challenging its position of global leadership. Preventing the emergence of a Russia-China alliance ought to be at the very top of the list of U.S. foreign policy priorities, one seems to be paying any attention...The U.S. foreign policy community needs to wake up or, a decade from now, we'll be hearing debates about "who lost Eurasia."

The Fleeting Unipolar World Order

While Adomanis may be exaggerating, there is no doubt that the gas deal between China and Russia is an example of the emerging inter-imperial rivalry in the world system that the U.S. had hoped to prevent after the end of the Cold War. The U.S. had aimed to establish a unipolar world order after the collapse of the Russian empire in 1989 and 1991.

It recognized that it had an unprecedented opportunity to use its utterly dominant position as the world's sole superpower to secure global hegemony on terms advantageous to the U.S. capitalist class. It aggressively imposed neoliberalism through the IMF, World Bank and World Trade Organization.

And, contrary to the promised "peace dividend," it maintained its military arsenal and used it to enforce its agenda with successive and intensifying military interventions--from the use of conventional troops in Iraq, to "humanitarian intervention" in Haiti, to Obama's drone wars in Central Asia.

This grand strategy of global domination was thoroughly bipartisan, with only tactical shifts taking place between Democratic and Republican administrations. They all agreed with Jimmy Carter's former National Security Advisor Zbigniew Brzezinski that "the three grand imperatives of imperial geostrategy are to prevent collusion and maintain security dependence among the vassals, to keep tributaries pliant and protected, and to keep the barbarians from coming together."

A key part of the strategy was to incorporate and neutralize former Cold War antagonist, Russia, and engage and contain China, which was quickly developing into a major economic power and therefore a potential rival. U.S. policy recognized that it had to ensure its dominance in what Gilbert Achcar once called the "strategic triad."

The U.S. was successful through the early 2000s. It imposed neoliberalism in Russia, undercutting the country and enlarging NATO and the EU into Eastern Europe. It went to war in Kosovo in 1999 to enforce its rule over the region. It engaged China and incorporated it into the WTO, all the while using its standoff with North Korea as a cover to maintain its military arsenal in Asia to contain Beijing.

The New Asymmetric, Multipolar World Order

At the beginning of the 1990s, the U.S. appeared set to become an unrivaled empire overseeing a vast neoliberal expansion of the world economy. But three developments undermined this unipolar world order, ushering in a multipolar world order, still dominated by the U.S., but now challenged by a host of countries--most importantly, China but also several other regional powers.

First, Bush and the neocons overplayed the American hand in Afghanistan and Iraq. They had hoped to use 9/11 as a cover to conduct rolling regime changes to install allied regimes throughout the Middle East, the main source of oil for the world economy. With the region under its control, Bush had hoped to lock in U.S. global domination. Instead, both wars turned into occupations that squandered treasure and blood, sparked opposition from allies, and exposed the limits of American power.

Second, the economic crisis of 2008 further undermined the U.S. position in the world system. Suddenly, the U.S., which had ridden the neoliberal boom to expand the reach of its corporations around the world, was nearly crippled. So were its historic allies in Europe. Only record bailouts and stimulus packages prevented a full-scale depression, but they failed to trigger a new expansion, instead paving the way for a program of neoliberal austerity amid long-term global slump.

Third, while the U.S. suffered through its twin crises, the neoliberal boom fueled the rise of new centers of capital accumulation that began to assert their power on the world and regional stages. The business press dubbed these new economic powers the BRICS--Brazil, Russia, India, China and South Africa. Obviously, they are not all the same, with China standing out as a bona fide new power.

China has transformed itself from a state capitalist backwater in the 1970s into the world's second-largest economy--and soon, it will even eclipse the U.S. to become the world's largest economy. Based on its economic might, it has engaged in a vast new program of military modernization to back up its relentless push outwards to secure resources for its booming economy.

Under the rule of Vladimir Putin, Russia has resurrected itself from the dead. Putin regained state ownership over its strategic energy sector and used the spike in oil prices to establish Russia as a nuclear-armed petro power. After laying waste to the Chechen national liberation struggle, Putin began to push back against American encroachment in Eastern Europe and Central Asia. He nearly came to blows with the U.S. and its European allies over Georgia when he sent his forces into Abkhazia and South Ossetia.

Other regional powers, such as Brazil and India, are also becoming increasingly assertive, sometimes in concert with and at other times at odds with the U.S. Thus, a new asymmetric, multipolar world order is developing in the wake of the relative decline of American imperialism. The U.S. still remains dominant, but it faces a potential superpower in China and a host of lesser rivals.

The Emerging Russo-Sino Alliance

America's imperial reassertion has driven Russia and China, which have been historic antagonists, closer and closer together. "Russia and China appear to have decided that, to better advance their own interests, they need to knock Washington down a peg or two," write Leslie Gelb and Dimitri Simes in the New York Times.

Of course, neither wants to directly challenge the U.S., which still dominates the world system, but they have made it abundantly clear that they want a multipolar world order to replace the American-ruled unipolar world order.

They have already been collaborating in numerous ways. They established the Shanghai Cooperation Organization, which unites the two with several Central Asian states and even includes Iran as an observer. They have also adopted a common front against U.S. policy in Kosovo, Libya, Syria and Iran.

It is no accident that new Chinese President Xi Jinping's first diplomatic mission was to Moscow, where he declared the two powers should "resolutely support each other in efforts to protect national sovereignty, security and development interests" and promised to "closely coordinate" on regional and international issues. Putin reciprocated, declaring the "strategic partnership between us is of real importance on both a bilateral and global scale."

Russia and China have also attempted to unite the other new centers of capital accumulation under their wing. Thus, they pushed at the recent BRICS conference in South Africa for the formation of a BRICS banks as an alternative to the IMF. They will use it to pursue their own imperial interests in the developing world outside the control of the U.S.

In another challenge to American supremacy, China is increasingly using its own currency, the yuan, and not the dollar for its international trade and investment deals as it has done with its pact with Russia. China is promising that the yuan will become fully convertible in 2018. It is thus flirting with challenging the dollar as the international reserve currency.

"The U.S. dollar remains the top global reserve currency, involving 33 percent of global foreign exchange holdings at the end of 2013, according to the IMF," notes Asia Times columnist Pepe Escobar. "It was, however, 55 percent in 2000. Nobody knows the percentage in yuan (and Beijing isn't talking), but the IMF notes that reserves in 'other currencies' in emerging markets have been up 400 percent since 2003."

Thus, for the first time since the end of the Cold War, the U.S. faces both a rising superpower, China, and a potential alliance between China and other powers--Russia in particular. China's gas deal with Russia, in the words of Stratfor's Lauren Goodrich, is a turning point in the developing inter-imperial rivalry between the U.S., China and Russia.

Obstacles to Alliance

There are several obstacles, however, to the consolidation of China and Russia as a rival bloc to the U.S.

First, there are numerous conflicts between Russia and China that could serve as obstacles. On the surface, an alliance between Russia, the world's largest energy producer, and China, the largest energy consumer, appears to be a match made in heaven. But in any alliance, China will be the dominant one, with Russia reduced to being a junior petro-power unable to develop a broader economic base.

"China now will develop significant leverage in Russia, and the more Russia relies on China rather than the West as an economic partner, the less chance there will be for Russia to modernize its economy," notes Marsha Lippman from the Carnegie Moscow Center. "Russia is stuck being a resource-based economy."

This is an important point, but it must be qualified since Russia's reduction to the status of a petro-power was, in fact, the product of its subjection to American neoliberalism and its consequent deindustrialization. But the point stands that its alliance with China will most likely lock it into this subordinate position. Therefore, Russia will bristle at any subjection to China.

There are also geopolitical conflicts between Russia and China. Moscow is intent on forging a Eurasian Union with its former Soviet Republics that would lock them under Russian hegemony. China has proposed that those very same republics unite with it to form a New Silk Road. This puts them at odds with one another in their own backyard.

Second, neither power at this point is willing to challenge American hegemony. China in particular is too integrated and dependent on the U.S. economy (for now, anyway). Its bilateral trade is three times greater with the U.S. than Russia. China has no interest in risking relations with its main export market. Similarly, as the sanctions over Ukraine proved, Russia is also very dependent on the world financial markets and therefore cannot risk open confrontation with the U.S.

But the gas deal must be seen as one aspect of a global realignment in the balance of imperial power in the world that will unfold over the next 10 to 20 years. China is obviously the chief superpower rival to the U.S., and it will pursue various alliances, like with Russia, to ensure its continued rise, not only in Asia but throughout out the world. These emerging inter-imperial antagonisms will most likely intensify over the coming decades.

"Drill, Baby, Drill"

As Michael Klare has documented in The Race for What's Left, hydrocarbon energy will be at the center of the intensifying rivalries between these great powers. The U.S. is determined to maintain its chokehold over the Middle East and its reserves. It will maintain its global military power to police and control the shipping lanes used to export oil and LNG around the world.

Moreover, it will do all in its power to make sure that its corporations and not those of its rivals control the opening of new strategic energy reserves in contested territories like the Artic Circle. There, the U.S., Russia and other states are locked in a race to stake out territorial claims and drilling rights. The U.S. is also intent on reestablishing itself as a petro-power to fuel its own re-industrialization and supplant Russia and Saudi Arabia as the leading exporter of hydrocarbons.

In the policy journal of American imperialism, Foreign Affairs, Edward Morse sees cause for celebration:

Having outstripped Russia as the world's largest gas producer, by the end of the decade, the United States will become one of the largest gas exporters, fundamentally changing pricing and trade patterns in global energy markets. U.S. oil production, meanwhile, has grown by 60 percent since 2008, climbing by 3 million barrels a day to more than 8 million barrels a day. Within a couple of years, it will exceed its old record level of almost 10 million barrels a day as the United States overtakes Russia and Saudi Arabia and becomes the largest oil producer.

It hopes to export LNG to Europe and thereby undercut Russia's ability to blackmail American allies with the threat of cutting off their gas supplies. The Huffington Post reports that a leaked section of the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated between the U.S. and EU promises to "expand fracking, offshore oil drilling and natural gas exploration" specifically for export to the European market.

The U.S. also hopes to crack open OPEC, which has been able to maintain high oil and gas prices. As Morse writes, cheap American hydrocarbons will put an "end to OPEC's 40-year dominance, during which producers were able to band together to raise prices well above production costs, with negative consequences for the world economy."

The imperial competition between the U.S., Russia, China and all the other capitalist powers has stopped them from negotiating any meaningful agreement on climate change. Their rivalry is instead driving them to adopt a Sarah Palin's infamous policy everywhere: "Drill, baby, drill."

The hope amidst this horror is the growing movement against climate change. The key for that movement is to unite with developing working-class resistance against neoliberal austerity and the international oppositions to all imperialisms--American, Chinese and Russia. If we can meld these movements together, we will have the force to fight for a new socialist society that puts people and our ecosystem before profit and empire.

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